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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75654  
Subject: Re:VUL-Giant Roth - Question for TMFPixy Date: 4/3/1999 1:26 PM
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TMFPixy,

Perhaps you can comment on FoolWAM's post below. I have two questions.

(1)FoolWAM says, "Have your planner run illustrations at 10%-11% gross return, not net, and use that as your guide." Question: Would it make more sense to calculate returns "net" of the expenses of the VUL contract and use that as a camparison to alternative investments?

(2)FoolWAM says "That comparison is irrelevant because taxes will never be due on VUL withdrawals and loans if done properly." Question: This sounds too good to be true. What are the tax consequences if withdrawals and loans are done "improperly?" Also, is it possible/likely that a big drop in the asset value of the VUL subaccounts, or an increase in mortality expenses could force the policyholder into an adverse tax situation? It there a chance that the policyholder would have to pay increased premiums, or reduce the balance of an outstanding loan against the VUL policy to avoid these tax consequences?

Thanks,

intercst

FoolWAM wrote,

<< It sounds like you are a good candidate for a VUL. Let me outline the criteria I use for deciding whether someone qualifies. Do you need life insurance or
additional life insurance; are you in good health; are you willing to overfund the policy well over target premium; are you willing to place all your premium dollars in the equity subaccounts; are you willing to wait at least 10 years to make withdrawals of cash, are you willing to keep the policy in force your entire life, and have you already maximum funded your 401(k) and IRA's? If you answered yes to all or most of these questions, you are probably a good candidate.

I would recommend that you buy the smallest policy that you can overfund and max that baby out! Have your planner run illustrations at 10%-11% gross return, not net, and use that as your guide.

Someone else recommended tax efficient funds in lieu of the VUL. That comparison is irrelevant because taxes will never be due on VUL withdrawals and loans if done properly. If you were comparing this to a variable annuity, I would say the comparison to tax efficient funds would be very relevent. A VUL though is not the same thing as a Variable Annuity.

Alan McKnight, CFP>>
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